As you embark on the exciting venture of starting up your new business, you may be solely focused on ensuring its success. However, it’s important to remember that decisions made at inception can affect your personal tax position further down the line.
Tech founders are often serial entrepreneurs and typically the life cycle of a tech business can be summarised in terms of start-up, early growth, scale-up, international growth and exit planning. Founders must prioritise their personal tax position at each state of the tech businesses lifecycle, and this starts with getting the right share structure in place from the outset to achieve the potentially significant tax reliefs available on exit.
Once your company becomes profitable you will have some initial decisions to make around your remuneration. This will depend of course on the available profits in the company, but you also need to consider your personal circumstances and how these might affect the income you draw. You may need to restrict your remuneration if you wish to maintain your child benefit entitlement, for example, or review whether your pay has an impact on your student loan repayments. If you have other sources of income, you may be keen to redirect earnings into a pension. Dividends and salaries attract different rates of tax and the tax you pay can depend on where you live in the UK. You also need to ensure you’re claiming all the tax reliefs you’re entitled to.
The Self-Assessment criteria says you must register with HMRC to complete a tax return if you are a company director. Take a look at our short video below for more information on this:
When considering an exit, the aim will be to complete the value extraction in the most tax efficient manner possible.
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Our team are on hand to help. Wherever you are on your journey, get in touch with a member of our Tech team now to find out how we can help you realise your business ambitions.
Why not check out our latest article The devil in the detail: Ensuring your EMI scheme is fit for the future.
Partner, Head of Business Advisory and Technology & Life Sciences
Shaun Millican
Partner, Board member and Head of Business Advisory and Technology & Life Sciences, Shaun joined the firm in 2002 when the firm opened our Edinburgh office.
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